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2020 (12) TMI 456 - AT - Income TaxDisallowance of foreign exchange fluctuation loss as notional loss - forex loss were emanated due to fluctuation in the value of foreign currency in relation to Indian currency - Assessee submitted that the forex loss includes both realized and unrealized loss and the accounting treated for the same was in line with the accounting standard 11 as mandated by Schedule VI of the Companies Act and therefore, the claim of forex loss should be allowed - HELD THAT - In the present case, even though the assessee may be following mercantile system of accounting, but, the parameters as envisaged in the case of CIT v. Woodward Governor India (P) Ltd. 2009 (4) TMI 4 - SUPREME COURT have been fulfilled or not was not emanating from the appellate order since the assessee has heavily relied on the decision in the case of Oil Natural Gas Corporation Ltd. 2010 (3) TMI 81 - SUPREME COURT . Moreover, the assessee has not filed any detailed explanation in support of material evidence. In view of the above, we set aside the orders of authorities below and remit the matter back to the file of the Assessing Officer to examine the facts of the case in line with the decision of the Hon'ble Supreme Court in the case of Oil Natural Gas Corporation Ltd. v. CIT 2010 (3) TMI 81 - SUPREME COURT as well as CIT v. Woodward Governor India (P) Ltd 2009 (4) TMI 4 - SUPREME COURT and decide the issue afresh - Appeal of the assessee is allowed for statistical purposes.
Issues Involved:
Disallowance of foreign exchange fluctuation loss as notional loss. Detailed Analysis: 1. Disallowance of Forex Loss: The appeal was against the disallowance of foreign exchange fluctuation loss as notional loss by the ld. CIT(A). The assessee argued that the forex loss was due to fluctuation in foreign currency value and should be allowed as per accounting standard 11. The ld. DR contended that the loss was not permissible under section 37(1) of the Income Tax Act as it was a notional liability. The tribunal found the assessment order lacking in clear findings regarding the nature of the transaction. The assessee claimed that the forex loss included both realized and unrealized loss, following accounting standard 11. The tribunal noted the absence of a convincing explanation regarding the actual liability or increased liability in the relevant financial year. 2. Legal Precedents and Analysis: The tribunal referred to legal precedents such as CIT v. Woodward Governor India (P) Ltd. and Oil & Natural Gas Corporation Ltd. v. CIT to determine the allowability of foreign exchange losses under section 37(1) of the Act for entities following the mercantile system of accounting. However, in the present case, the tribunal found that the parameters from the legal precedents were not adequately addressed in the appellate order. The tribunal emphasized the need for detailed explanations and evidence to support the claim of foreign exchange loss. 3. Remand and Fresh Adjudication: The tribunal set aside the orders of the authorities below and remitted the matter back to the Assessing Officer for a fresh examination. The Assessing Officer was directed to consider the facts of the case in line with the legal precedents cited and decide the issue afresh, affording the assessee an opportunity to be heard. The tribunal instructed the assessee to provide all necessary details with proper explanations and evidence for examination. 4. Conclusion: The tribunal allowed the appeal of the assessee for statistical purposes, emphasizing the need for a detailed and reasoned determination by the Assessing Officer regarding the allowability of the foreign exchange fluctuation loss. The separate concurring order highlighted the importance of detailed observations and findings in the fresh adjudication process, considering the statutory provisions of the Income Tax Act and legal precedents.
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